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Permian crude is getting lighter: Analyst

08 Jun 2016 18:52 (+01:00 GMT)
Permian crude is getting lighter: Analyst

Houston, 8 June (Argus) — Permian crude is getting lighter: Analyst

Crude from the Permian basin is getting increasingly lighter, which could cause major headaches for US refiners, said Ponderosa Advisors analyst Sarp Ozkan.

About 50pc of crude from the Permian is now 42°API gravity or higher, he said at the Argus North American Crude Transportation Summit this week. The number reflects the quality of the oil at the wellhead.

"If the Permian gets much lighter, there could be some trouble blending it to spec," he said, referring to the blending needed for the crude to meet specifications required by pipeline companies for shipping.

The variety of light crude coming from the Permian and other locations will make it difficult to control quality at Cushing, Oklahoma, the price settlement point used by the New York Mercantile Exchange, as well as at other locations such as Nederland, Texas, and Houston, he said.

The changing crude quality is leading to an increase in certain materials that can damage some refining equipment. The problem has grown such that industry consortium Crude Oil Quality Association has set up a subcommittee to study and potentially resolve the issue.

"Crude quality and integrity is at risk," Ozkan said.

Output in the Permian has continued to hold steady above 2mn b/d this year despite low commodity prices because of lower extraction costs, according to the latest US Energy Information Administration (EIA) figures.

Permian drilling has also been propelled by savvy land lease owners, Ozkan said. Several companies have decided to concentrate on the Permian while selling off assets in other fields.

About 53pc of the crude output in the Lower 48 states in March was light oil with an API gravity above 40°, the EIA said. Nearly all of the growth in US output in recent years comes from formations that produce light crude, including the Permian, the Eagle Ford, and the Bakken.